Italy does have the largest number at 20, the US has the second largest number, at 11. Italy is down from 100 years ago, when 38 of the 62 electors were Italian.

This link has a great feature about this, under "A Century of Conclaves," it lists every Conclave for the last century, and indicates which countries were represented by how many cardinal electors in each Conclave. Pretty nifty. (You do have to register, but it's free)

How does a pope choose where to select cardinals from? In part it's based on the merits of the individual, but also key is the importance of the diocese where that bishop sits. So Boston and New York usually have a cardinal for (arch) bishop. The Diocese of Fargo, North Dakota is unlikely to ever have its own cardinal.

The main purpose of a cardinal is to choose the next pope. So some level of diversity in the College of Cardinals is probably a good idea, so that you don't get someone who is viewed in a bad light by say, all eastern Europeans. Instead, the eastern European cardinals would voice their objections, and a more suitable candidate would be found.

However, as with many traditions in the Church, there have been times when local politics, favoritism, and corruption were factors in the selection of cardinals. It was considered something of a slap in the face for a city that once had a cardinal to lose that honor. So while some of the old Italian contingent of 30+ cardinals may have had a history rooted in questionable motives, it wasn't politically wise to strip those cities of their cardinals. This was especially the case prior to the 20th Century, when the pope was ruler of a good chunk of Italy. As political and military leaders, it was necessary for popes of the time to keep their subjects and allies happy.

Since the election of Pope Paul VI, on the other hand, the Italian contingent of cardinal electors has dropped from 29 to 20, while the total number of cardinal electors has risen from 80 to 115. Now that Italian politics is no longer as crucial, the College of Cardinals is becoming more international and representative of the global Church.